PPC says a lender-compelled rights issue is almost off the table, having now successfully completed the R515m sale of its lime business, while cement sales have increased to above prepandemic levels.
SA’s biggest cement maker is now “largely done” with a restructuring process aimed at bringing debt to sustainable levels, CEO Roland van Wijnen said on Tuesday. With no major expansion plans in the offing, the group is now sufficiently cash-generative to avoid tapping shareholders altogether, he said.
A rights issue of up to R1.25bn hovered over PPC in 2021, with much hinging on the sale of the lime business, the conditions for which were met earlier in September. The group intends to use the proceeds to settle an SA debt pile that now stands at about R1.8bn, down from R1.9bn at end-March.
The group, valued at R6.6bn on the JSE, said on Tuesday lenders have signed off on a revised debt agreement, subject to the receipt of the proceeds, to remove any undertaking for a rights offer.
Shares in the company rose as much as 3% before giving up most of the gains to close 0.7% higher at R4.13. The stock has risen 70% since the beginning of 2020, but is still down from a record high of R35.26 in 2007.
Once a must-have blue-chip JSE counter, PPC has been battling with the legacy of an unsustainable debt structure that followed its push into the rest of Africa, but had notably struggled in the Democratic Republic of Congo (DRC), where the group was on the line for debt repayments from that business.
Shares tripled
Earlier in 2021, the group said it had restructured R2.5bn in senior debt owed by the DRC unit, which simultaneously eliminated its right to seek recourse from the broader group in the event of nonpayment.
PPC’s shares have tripled so far in 2021, rocketing since March when that agreement was announced.
PPC said in a trading update on Tuesday that it expects cement sales volumes for the six months ending September to increase 10%-13% year on year, with double- digit volume growth in most business units. Relative to 2019, sales are expected to rise 6%-9%.
In SA and Botswana, which accounts for more than two-thirds of group revenue, cement sales are expected to rise as much as 13% relative to 2020, and as much as 6% above prepandemic levels, though the group noted that the picture is not entirely healthy.
Growth in cement sales volumes in SA’s informal and rural markets continued to outpace other segments of the market, PPC said, adding that it is cautious about the outlook for the commercial building market in coastal regions.
Van Wijnen said that it could be attributed partly to the reliance of coastal regions on tourism, while the group is also concerned about a 14% year-on-year rise in imports, which now account for about a tenth of the local market.
Antidumping measures
SA’s installed capacity is still only running at about three-quarters, said Van Wijnen, and the current environment does not incentivise further investment in the local industry.
PPC is lobbying the government to impose antidumping measures against imports, saying that those often do not reflect input costs, such as SA’s carbon tax, or other regulatory compliance measures for those involved in the mining sector.
PPC, which says 99% of its inputs are locally sourced, is also seeking to classify locally produced cement as a designated product, making its use in government-funded construction projects it compulsory.
This could benefit the industry, which is eyeing the government’s plans to reignite SA’s economy through infrastructure spending, as it seeks to leverage the market for about R1-trillion over the coming years. Though the SA National Roads Agency has begun spending again, the slow pace of getting this effort under way has been criticised by some industry analysts and lobby groups.
“The intention is definitely there, so that’s a start,” Van Wijnen said. “There are plans getting under way, and there are things happening on the ground.”
PPC is continuing to engage with the government on what it could do as a big producer, he said, with its focus on skills development and sustainable employment.
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